If you are "underwater" on your mortgage - that is, you owe more on your home than it is currently worth on the market - you may be tempted to just walk away. Although your lender can't force you to stay in your home, there will be financial consequences if you walk out on your mortgage.
The Lender May Repossess The Property
A mortgage contract gives the lender the right to take possession of the property if you don't make your payments. The lender will file a foreclosure complaint with the court. A copy of this complaint and a hearing notice are mailed to you. The notice tells you the date and time the court will hold a hearing on the foreclosure.
Unless you demonstrate that you are not behind on your payments or you pay the past-due balance, which is not likely if you've walked out, the court will grant the foreclosure to the lender. Once the court grants the foreclosure, the lender becomes the legal owner of the property.
The Lender May Sue You In Court
Some states are recourse states. This means the lender has the right to sue a homeowner who defaults on a home loan. The lender will sell the home at an auction and can then sue you for any difference between what it makes on the sale and what you still owe on your mortgage. If the court issues a judgment against you for that deficiency amount, you are legally responsible for the judgment debt.
The Lender May Seize Your Assets
In some states the lender that has a judgment against you can take money from your bank accounts to collect on the judgment. Some states allow judgment owners to take a portion of your wages. The statute of limitations - or the time you remain responsible for paying the judgment - can be quite long. The Florida statute on judgments is 20 years.
Effect of Foreclosure on Credit
If the lender forecloses on the mortgage loan, the lender will also report that foreclosure to the credit bureaus that maintain and report your credit, or FICO, score to potential lenders. A foreclosure on your report can drop your FICO credit score by 85-160 points and can stay on your credit report for up to seven years, meaning it will be difficult for you to qualify for new loans during that period.
A Foreclosure Lawyer Can Help
The law surrounding the liability of owners who walk away from foreclosed property is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a foreclosure lawyer.